Just when we thought we saw a light at the end of the tunnel, retail sales dropped “unexpectedly” in March after a three month period of growth. Why is this bad? Because it makes economists worry about deflation.
Purchases fell 1.1 percent, with declines from car dealers to electronics stores and restaurants, the Commerce Department said in Washington. Only pharmacies and grocery stores saw a gain. The Labor Department said wholesale prices fell last month, indicating that deflation risks remain.
Why is deflation bad? Well, to put it as simply as possible — when prices fall (deflation) it’s good for you in the short term, because you can buy a big screen tv for cheaper. But when your boss decides that since he can’t sell his widgets for more than it costs to make them (in 6 months when it is time to sell the widgets, prices will have fallen and consumers might still be delaying purchases to see how much cheaper widgets will get) he decides not to invest in new widgets.
You make widgets. You do not have a job, so you watch your big screen tv and cry until the bank takes your house.
Again, it’s a simple explanation of a complicated problem, but we’re doing our best.
U.S. Economy: Retail Sales, Producer Prices Declined in March [Bloomberg]